News
28.05.2009
Ukraine's Current Account Almost Balanced in April Despite Weak Exports
Ukraine's current account narrowed close to balance in April, according to preliminary estimates from the National Bank of Ukraine. The deficit amounted to $70US million, down from a revised $319US million in March, with a shrinking merchandise trade deficit ($449US million compared to $564US million in March) and a rising surplus in non-factor services being the key driving forces. However, exports failed to gain traction from extremely low levels, falling 43.9% year-on-year (y/y) in April and a cumulated 40.5% y/y over January-April.
Thanks to the steep depreciation of the hryvnia, imports dropped even further (54.6% and 50.2% y/y, respectively). The main drag on exports have still been metallurgical products, which slumped 62.2% on the year in dollar-denominated value terms, while exports of machinery and equipment, and chemicals fell 42.8% and 48.2%, respectively. All of these product groups have shown declining export values from March to April in unadjusted terms, moreover. Ukraine's financial account, meanwhile, has hardly improved either, posting a deficit of $986US million in April and a cumulative shortfall of $5US.7 billion for the first four months of the year. A ray of hope have been net direct investments, which edged up to 720 million in April alone, roughly half the amount for the entire January-April period, but it was not enough to compensate for the net outflow in terms of portfolio and other investment, including borrowing from abroad.
Significance:The preliminary results for Ukraine's external accounts in April hardly inspire hopes for an improvement of the country's external liquidity situation or an export-led recovery any time soon. Exports and the current account signal that the lack of demand from abroad is well entrenched, and the increase direct investment inflows, encouraging as it looks at first sight, is hardly sufficient to compensate for the ongoing liquidity outflow. Nevertheless, the situation on Ukraine's financial markets has visibly stabilised since March and the official hryvnia exchange rate to the U.S. dollar has even managed to gain back some losses since early May, hovering around 7.60 hryvnia per U.S. dollar. However, this could still be attributed to seasonal fluctuations of foreign exchange demand. Indeed, April's balance of payments result signal that Ukraine will remain dependent on official external liquidity support from the International Monetary Fund (IMF) in 2009 at least. The hryvnia seems therefore unlikely to strengthen much further from the current point; we rather expect a rate of around 8 hryvnia:US$ until the end of the year.
Global Insight
